Question 1

In the short run, if the Fed wants to raise the federal funds rate, it

Accepted Answer

A)  instructs large commercial banks to sell government securities in the open market. 
B)  instructs the New York Fed to sell government securities in the open market. 
C)  tells large commercial banks to raise their interest rates. 
D)  instructs the New York Fed to sell government securities in the foreign exchange market. 
E)  instructs the New York Fed to buy government securities in the open market. 
A)  instructs large commercial banks to sell government securities in the open market. 
B)  instructs the New York Fed to sell government securities in the open market. 
C)  tells large commercial banks to raise their interest rates. 
D)  instructs the New York Fed to sell government securities in the foreign exchange market. 
E)  instructs the New York Fed to buy government securities in the open market.

Question 2

If the Fed fears inflation, then the Fed

Accepted Answer

A)  directs banks to lower the nominal interest rate. 
B)  directs banks to raise the nominal interest rate. 
C)  will sell government securities in the open market. 
D)  will buy government securities in the open market. 
E)  will increase the income tax rate on interest income. 
A)  directs banks to lower the nominal interest rate. 
B)  directs banks to raise the nominal interest rate. 
C)  will sell government securities in the open market. 
D)  will buy government securities in the open market. 
E)  will increase the income tax rate on interest income.

Question 3

Which of the following statements about the ripple effects of monetary policy is FALSE? Monetary policy can

Accepted Answer

A)  raise the federal funds rate, thereby decreasing the quantity of money, raising the real interest rate, and decreasing investment. 
B)  lower the federal funds rate, thereby increasing the supply of loanable funds, and lowering the exchange rate. 
C)  lower the federal funds rate, thereby lowering the real interest rate and increasing aggregate demand. 
D)  raise the federal funds rate and shift the aggregate demand curve leftward. 
E)  raise the federal funds rate, thereby raising the real interest rate and increasing potential GDP. 
A)  raise the federal funds rate, thereby decreasing the quantity of money, raising the real interest rate, and decreasing investment. 
B)  lower the federal funds rate, thereby increasing the supply of loanable funds, and lowering the exchange rate. 
C)  lower the federal funds rate, thereby lowering the real interest rate and increasing aggregate demand. 
D)  raise the federal funds rate and shift the aggregate demand curve leftward. 
E)  raise the federal funds rate, thereby raising the real interest rate and increasing potential GDP.

Question 4

List and briefly explain the steps in how monetary policy affects real GDP in the AS/AD model using as your example the case when the Fed eases monetary policy to fight a recession.

Accepted Answer

There are several steps.Step one is a ch

Question 5

Which of the following is NOT an alternative rule for monetary policy?

Accepted Answer

A)  a monetary base instrument rule 
B)  a money targeting rule 
C)  a natural unemployment rate targeting rule 
D)  a gold price targeting rule 
E)  an inflation rate targeting rule 
A)  a monetary base instrument rule 
B)  a money targeting rule 
C)  a natural unemployment rate targeting rule 
D)  a gold price targeting rule 
E)  an inflation rate targeting rule

Question 6

If the Fed raises the federal funds rate

Accepted Answer

A)  investment increases. 
B)  real GDP increases. 
C)  exports increase and imports decrease. 
D)  exports decrease and imports increase. 
E)  in the short run the interest rate falls. 
A)  investment increases. 
B)  real GDP increases. 
C)  exports increase and imports decrease. 
D)  exports decrease and imports increase. 
E)  in the short run the interest rate falls.

Question 7

A fall in the federal funds rate leads to

Accepted Answer

A)  a decrease in the quantity of money. 
B)  a rise in the real interest rate. 
C)  a decrease in investment. 
D)  a rise in the price level. 
E)  a decrease in real GDP. 
A)  a decrease in the quantity of money. 
B)  a rise in the real interest rate. 
C)  a decrease in investment. 
D)  a rise in the price level. 
E)  a decrease in real GDP.

Question 8

If the Fed wants to close a recessionary gap, should it buy or sell government securities?
 Why?

Accepted Answer

The Fed should lower the federal funds r

Question 9

The proposal to keep the quantity of money growing at a slow constant rate is an example of

Accepted Answer

A)  discretionary policy. 
B)  an inflation rate targeting rule. 
C)  a constant federal funds rate rule. 
D)  a money targeting rule. 
E)  the gold standard. 
A)  discretionary policy. 
B)  an inflation rate targeting rule. 
C)  a constant federal funds rate rule. 
D)  a money targeting rule. 
E)  the gold standard.

Question 10

The core inflation rate measures changes in the

Accepted Answer

A)  price of only two consumer goods: food and fuel. 
B)  prices of all consumer goods. 
C)  prices of consumer goods except food and fuel. 
D)  prices of consumer goods except health care. 
E)  prices of all the "core" goods and services a typical family buys. 
A)  price of only two consumer goods: food and fuel. 
B)  prices of all consumer goods. 
C)  prices of consumer goods except food and fuel. 
D)  prices of consumer goods except health care. 
E)  prices of all the "core" goods and services a typical family buys.

Question 11

-The economy is at the equilibrium shown at point a in the above figure.If the Fed

Accepted Answer

A)  buys government securities, the economy moves to an equilibrium at point c. 
B)  buys government securities, the economy moves to an equilibrium at point b. 
C)  sells government securities, the economy moves to an equilibrium at point c. 
D)  sells government securities, the economy moves to an equilibrium at point b. 
E)  None of the above are correct because the economy will remain at point a if the Fed buys or if the Fed sells government securities. 
A)  buys government securities, the economy moves to an equilibrium at point c. 
B)  buys government securities, the economy moves to an equilibrium at point b. 
C)  sells government securities, the economy moves to an equilibrium at point c. 
D)  sells government securities, the economy moves to an equilibrium at point b. 
E)  None of the above are correct because the economy will remain at point a if the Fed buys or if the Fed sells government securities.

Question 12

To determine whether the goal of stable prices is being achieved, the Federal Reserve monitors the ________; to determine whether the goal of maximum employment is being achieved, the Federal Reserve monitors ________.

Accepted Answer

A)  core CPI inflation rate; the natural unemployment rate 
B)  CPI; the gap between nominal GDP and real GDP 
C)  core GDP deflator inflation rate; the natural unemployment rate 
D)  core PCE deflator inflation rate; the output gap 
E)  GDP price deflator; real GDP 
A)  core CPI inflation rate; the natural unemployment rate 
B)  CPI; the gap between nominal GDP and real GDP 
C)  core GDP deflator inflation rate; the natural unemployment rate 
D)  core PCE deflator inflation rate; the output gap 
E)  GDP price deflator; real GDP

Question 13

Equilibrium in the market for bank reserves determines the

Accepted Answer

A)  federal funds rate. 
B)  inflation rate. 
C)  price level. 
D)  30-year Treasury bond rate. 
E)  exchange rate. 
A)  federal funds rate. 
B)  inflation rate. 
C)  price level. 
D)  30-year Treasury bond rate. 
E)  exchange rate.

Question 14

The figure above shows the market for loanable funds.The supply of loanable funds curve shifts rightward.
-The change illustrated in the figure above can be the result of the Fed ________ government securities in the open market and will ultimately lead to ________ in aggregate demand.

Accepted Answer

A)  selling; an increase 
B)  buying; an increase. 
C)  selling; a decrease. 
D)  buying; an increase 
E)  selling; no change 
A)  selling; an increase 
B)  buying; an increase. 
C)  selling; a decrease. 
D)  buying; an increase 
E)  selling; no change

Question 15

Figures
   
The figure above shows the market for reserves.
-If the Fed wants to increase the federal funds rate, it will conduct an open market operation in which it ________ government securities and thereby shifts the ________ curve ________.

Accepted Answer

A)  sell; RS; rightward 
B)  sell; RD; leftward 
C)  buy; RD; rightward 
D)  buy; RS; leftward 
E)  sell; RS; leftward 
A)  sell; RS; rightward 
B)  sell; RD; leftward 
C)  buy; RD; rightward 
D)  buy; RS; leftward 
E)  sell; RS; leftward

Question 16

When the FOMC raises the federal funds rate, almost immediately ________ and a few weeks later the ________.

Accepted Answer

A)  short-term interest rates rise; quantity of money and supply of loanable funds decrease 
B)  long-term interest rates rise; quantity of money and supply of loanable funds decrease 
C)  short-term interest rates fall; quantity of money and supply of loanable funds decrease 
D)  long-term interest rates rise; quantity of money and supply of loanable funds decrease. 
E)  short-term interest rates fall; quantity of money and supply of loanable funds increase. 
A)  short-term interest rates rise; quantity of money and supply of loanable funds decrease 
B)  long-term interest rates rise; quantity of money and supply of loanable funds decrease 
C)  short-term interest rates fall; quantity of money and supply of loanable funds decrease 
D)  long-term interest rates rise; quantity of money and supply of loanable funds decrease. 
E)  short-term interest rates fall; quantity of money and supply of loanable funds increase.

Question 17

If the Fed fears a recession, it

Accepted Answer

A)  sells government securities. 
B)  decreases the quantity of money. 
C)  buys government securities. 
D)  decreases aggregate demand. 
E)  decreases aggregate supply. 
A)  sells government securities. 
B)  decreases the quantity of money. 
C)  buys government securities. 
D)  decreases aggregate demand. 
E)  decreases aggregate supply.

Question 18

In order to lower the federal funds rate, the Fed ________ government securities in open market operations, so that banks' reserves ________ and the quantity of money ________.

Accepted Answer

A)  buys; decrease; increases 
B)  sells; decrease; decreases 
C)  sells; increase; decreases 
D)  buys; increase; increases 
E)  buys; decrease; decreases 
A)  buys; decrease; increases 
B)  sells; decrease; decreases 
C)  sells; increase; decreases 
D)  buys; increase; increases 
E)  buys; decrease; decreases

Question 19

"The Federal Open Market Committee (FOMC) is the group within the Federal Reserve that makes monetary policy decisions.The FOMC meets twice a year and each meeting lasts eight days." Are these two statements correct or incorrect?
 Why?

Accepted Answer

The first statement is correct.The secon

Question 20

If the Fed increases interest rates, other things remaining the same, foreigners demand ________ dollars thereby ________ the exchange rate.

Accepted Answer

A)  more; increasing 
B)  more; decreasing 
C)  fewer; increasing 
D)  fewer; decreasing 
E)  the same number of; not affecting 
A)  more; increasing 
B)  more; decreasing 
C)  fewer; increasing 
D)  fewer; decreasing 
E)  the same number of; not affecting

In the short run, if the Fed wants to raise the federal funds rate, it

If the Fed fears inflation, then the Fed

Which of the following statements about the ripple effects of monetary policy is FALSE? Monetary policy can

List and briefly explain the steps in how monetary policy affects real GDP in the AS/AD model using as your example the case when the Fed eases monetary policy to fight a recession.

Which of the following is NOT an alternative rule for monetary policy?

If the Fed raises the federal funds rate

A fall in the federal funds rate leads to

If the Fed wants to close a recessionary gap, should it buy or sell government securities? Why?

The proposal to keep the quantity of money growing at a slow constant rate is an example of

The core inflation rate measures changes in the

-The economy is at the equilibrium shown at point a in the above figure.If the Fed

To determine whether the goal of stable prices is being achieved, the Federal Reserve monitors the ; to determine whether the goal of maximum employment is being achieved, the Federal Reserve monitors .

Equilibrium in the market for bank reserves determines the

The figure above shows the market for loanable funds.The supply of loanable funds curve shifts rightward. -The change illustrated in the figure above can be the result of the Fed government securities in the open market and will ultimately lead to in aggregate demand.

Figures The figure above shows the market for reserves. -If the Fed wants to increase the federal funds rate, it will conduct an open market operation in which it government securities and thereby shifts the curve .

When the FOMC raises the federal funds rate, almost immediately and a few weeks later the .

If the Fed fears a recession, it

In order to lower the federal funds rate, the Fed government securities in open market operations, so that banks' reserves and the quantity of money .

"The Federal Open Market Committee (FOMC) is the group within the Federal Reserve that makes monetary policy decisions.The FOMC meets twice a year and each meeting lasts eight days." Are these two statements correct or incorrect? Why?

If the Fed increases interest rates, other things remaining the same, foreigners demand dollars thereby the exchange rate.

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Fiscal Policy

International Trade Policy

International Finance

Filters

Exam 17: Monetary Policy

In the short run, if the Fed wants to raise the federal funds rate, it

If the Fed fears inflation, then the Fed

Which of the following statements about the ripple effects of monetary policy is FALSE? Monetary policy can

List and briefly explain the steps in how monetary policy affects real GDP in the AS/AD model using as your example the case when the Fed eases monetary policy to fight a recession.

Which of the following is NOT an alternative rule for monetary policy?

If the Fed raises the federal funds rate

A fall in the federal funds rate leads to

If the Fed wants to close a recessionary gap, should it buy or sell government securities? Why?

The proposal to keep the quantity of money growing at a slow constant rate is an example of

The core inflation rate measures changes in the

-The economy is at the equilibrium shown at point a in the above figure.If the Fed

To determine whether the goal of stable prices is being achieved, the Federal Reserve monitors the ________; to determine whether the goal of maximum employment is being achieved, the Federal Reserve monitors ________.

Equilibrium in the market for bank reserves determines the

The figure above shows the market for loanable funds.The supply of loanable funds curve shifts rightward. -The change illustrated in the figure above can be the result of the Fed ________ government securities in the open market and will ultimately lead to ________ in aggregate demand.

Figures The figure above shows the market for reserves. -If the Fed wants to increase the federal funds rate, it will conduct an open market operation in which it ________ government securities and thereby shifts the ________ curve ________.

When the FOMC raises the federal funds rate, almost immediately ________ and a few weeks later the ________.

If the Fed fears a recession, it

In order to lower the federal funds rate, the Fed ________ government securities in open market operations, so that banks' reserves ________ and the quantity of money ________.

"The Federal Open Market Committee (FOMC) is the group within the Federal Reserve that makes monetary policy decisions.The FOMC meets twice a year and each meeting lasts eight days." Are these two statements correct or incorrect? Why?

If the Fed increases interest rates, other things remaining the same, foreigners demand ________ dollars thereby ________ the exchange rate.

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Fiscal Policy

International Trade Policy

International Finance

Filters

To determine whether the goal of stable prices is being achieved, the Federal Reserve monitors the ; to determine whether the goal of maximum employment is being achieved, the Federal Reserve monitors .

The figure above shows the market for loanable funds.The supply of loanable funds curve shifts rightward. -The change illustrated in the figure above can be the result of the Fed government securities in the open market and will ultimately lead to in aggregate demand.

Figures The figure above shows the market for reserves. -If the Fed wants to increase the federal funds rate, it will conduct an open market operation in which it government securities and thereby shifts the curve .

When the FOMC raises the federal funds rate, almost immediately and a few weeks later the .

In order to lower the federal funds rate, the Fed government securities in open market operations, so that banks' reserves and the quantity of money .

If the Fed increases interest rates, other things remaining the same, foreigners demand dollars thereby the exchange rate.